Morning Note: Australia’s Inflation Cools, Japan’s Stays High, UK Awaits Data

Australia’s Inflation Slows

Australia’s consumer inflation eased in February, driven by a decline in electricity prices. The continued slowdown in home building costs and rents reinforced expectations of further rate cuts in the coming months. Data from the Australian Bureau of Statistics on Wednesday showed that the monthly consumer price index remained unchanged from January, while the annual inflation rate slowed to 2.4% from 2.5%.

The Reserve Bank of Australia (RBA) delivered its first interest rate cut in over four years last month but signalled caution regarding further policy easing. The central bank is closely monitoring underlying inflation, which is expected to settle at 2.7% later this year, still above the midpoint of its 2-3% target range. Therefore, market participants largely anticipate that the RBA will keep rates unchanged at its meeting on April 1.

(AUD/USD Daily Chart, Source: Trading View)

From a technical analysis perspective, the AUD/USD currency pair has been in a bearish trend since the end of September 2024, as indicated by lower highs and lower lows. However, it formed a double-bottom candlestick pattern with a significant liquidity sweep in January 2025, suggesting that bullish forces have regained control, pushing the rate upward and forming higher highs and higher lows.

Recently, it found support at the swap zone of 0.6250 – 0.6270 and rebounded upwards. It may potentially continue to rise and retest the resistance zone of 0.6370 – 0.6400 in the near term. If it breaks above this resistance zone, this will indicate that bullish momentum has regained control, potentially driving the rate higher.

Japan’s Service Inflation Stays High, BOJ Hike Hopes Alive

A key measure of Japan’s service-sector inflation reached 3.0% in February, sustaining expectations of additional interest rate hikes by the Bank of Japan (BOJ). The central bank closely monitors service-sector inflation to assess whether sustained wage growth will encourage firms to continue raising prices, thereby keeping inflation around its 2% target.

The Bank of Japan (BOJ) raised its short-term policy rate to 0.5% in January, anticipating that the country was nearing a sustainable achievement of its 2% inflation target, supported by strong wage growth. BOJ Governor Kazuo Ueda stated that the central bank would continue increasing interest rates if rising wages drive broader price increases across both goods and services.

(USD/JPY Daily Chart, Source: Trading View)

From a technical analysis perspective, the USD/JPY currency pair has been moving in a bearish trend since mid-January, as indicated by lower highs and lower lows within the descending channel. However, it has recently broken above the descending channel, retested the swap zone of 149.20 – 149.70, and rebounded from there. This valid bullish structure may suggest that the rate might continue to surge upwards and retest the resistance zone of 150.80 – 152.30. If it breaks above this resistance zone, it will indicate that bullish momentum has regained control, potentially driving the rate higher.

Investors Await U.K. Inflation Data

The U.K. inflation rate for January stood at 3.0% year-over-year (y/y) and declined by 0.1% month-over-month (m/m). For February, inflation is expected to remain steady at 3.0% y/y, while m/m inflation is projected to rise to 0.6%. The data is set for release on March 26 at 07:00 GMT. The stable y/y figure suggests that disinflation may be slowing due to sticky core inflation and elevated services costs. Meanwhile, the rebound in m/m inflation likely stems from seasonal factors, including a pickup in demand following January discounts and price adjustments in service.

(GBP/USD Daily Chart, Source: Trading View)

From a technical analysis perspective, the GBP/USD currency pair has been transitioning from a bearish to a bullish trend since mid-January 2025, as evidenced by higher highs and higher lows within an ascending channel. The rate is currently positioned between the swap zone of 1.2840 – 1.2880 and the resistance zone of 1.3040 – 1.3080. If it breaks below the swap zone in the near term, it could potentially drop further to retest the support zone of 1.2660 – 1.2600. Conversely, if it closes above the swap zone in the near term, this indicates that the bullish structure persists, potentially leading the rate upwards to retest the resistance zone of 1.3040 – 1.3080.

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